TRADE IN VALUE ADDED Fabienne Fortanier Head of Trade Statistics OECD Statistics Directorate Moldova October 2017
Increasing international fragmentation of production Explosion of trade in intermediates as firms specialise in stages (tasks) of production Wing box: Mitsubishi Heavy Industries (Japan) Wing ice protection: GKN Aerospace (UK) Vertical Stabiliser: Boeing Commercial Airplanes (USA) Raked wing tips: Korean Airlines Aerospace division (Korea) Horizontal Stabiliser: Alenia Aeronautica (Italy) Aux. power unit: Hamilton Sundstrand (USA) Passenger doors: Latécoère Aéroservices (France) Cargo doors: Saab (Sweden) Prepreg composites: Toray (Japan) Forward fuselage: Kawasaki Heavy Industries (Japan) Centre fuselage: Alenia Aeronautica (Italy) Spirit Aerosystems (USA) Escape slides: Air Cruisers (USA) Rear fuselage: Boeing South Carolina (USA) Lavatories: Jamco (Japan) Doors & windows: Zodiac Aerospace (USA) PPG Aerospace (USA) Centre wing box: Fuji Heavy Industries (Japan) Landing gear: Messier-Dowti (France) Electric brakes: Messier-Bugatti (France) Tires: Bridgestone Tires (Japan) Engines: GE Engines (USA), Rolls Royce (UK) Flight deck seats: Ipeco (UK) Engine nacelles: Goodrich (USA) Tools/Software: Dassault Systemes (France) Navigation: Honeywell (USA) Pilot control system: Rockwell Colins (USA) Wiring: Safran (France) Final assembly: Boeing Commercial Airplanes (USA) Final consumption 2 Final assembly 1 Trade in inputs (first tier suppliers) Decomposition of gross exports 3 5 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 4 7 7 6 5 4 3 2 6 1 Trade in inputs (second tier suppliers) Value added by second tier suppliers Value added by first tier suppliers Value added in the country of final production Conventional, gross trade statistics do not fully capture this fragmentation, creating misleading perceptions and imperfect policies: Export driven growth strategies may target the wrong sectors or trading partners; protectionist policies can hurt domestic upstream industries; imperfect assessments of systemic (macro-economic) risks for supply-chains; 2
requires a new statistical response: TiVA [no direct relationship] Gross exports (100) Gross exports (130) Country A Country B Value added (100) Value added (30) Country C Value added (100) [in value added terms, there is a direct relationship between A and C]
From a gross trade to a TiVA perspective TiVA aims to increase our understanding of the process of globalization by providing insights into the value added created by each country and industry in the production of goods and services that are traded and consumed worldwide How much value added is created by trade directly and indirectly and where? What is the (indirect) role of services in international trade? What are the risks (in GVCs) and impacts of policy measures How much is our economy/industry dependent upon foreign demand? TiVA s work horse: Inter-Country Input-Output Table (ICIO), tracing input-output (GVC) relationships across industries AND countries Constructed by combining national SUTs and other national accounts statistics with international trade in goods and services statistics 4
SUTs are a core input for TiVA indicators In combination with bilateral trade statistics, SUTs are the main building blocks, for constructing Inter-Country Supply and Use tables (and the ICIO), from which TiVA indicators can be derived National Supply & Use (SUTs) and/or Input-Output tables (IOTs) Bilateral trade statistics in goods and services Country A Sector 1 Sector 2 Sector 3 Country B Sector 1 Sector 2 Sector 3 Country C Sector 1 Sector 2 Sector 3 Taxes less subsidies on products Cif-fob adjustments Value added Labour compensation Operating surplus Taxes less subsidies on production Output Country A Country B Country C Final Demand Sector 1 Sector 2 Sector 3 Sector 1 Sector 2 Sector 3 Sector 1 Sector 2 Sector 3 Country A Country B Country C Inter-Country Input-Output (ICIO) table TiVA indicators New perspectives for trade analysis and policy
TIVA: WHAT DOES IT TELL US? 6
TiVA highlights: growing export intensity of production 80% Exported domestic value added as % of GDP 70% 60% 50% 40% 30% 2014 1995 2008 20% 10% 0% USA BRA JPN CHN AUS IND PER MEX IDN FRA GBR CAN ITA ZAF ESP MAR FIN CHL CRI RUS PRT DNK DEU TUN KOR NOR POL NLD CHE THA SVN SVK CZE HUN MYS IRL LUX 7
TiVA highlights: Exports require imports even if in not all countries the import content of exports has returned to pre-crisis levels, partly also reflecting domestic upgrading 60 Foreign value added as a % of exports, 1995-2014 50 40 30 20 10 0 LUX IRL SVK HUN CZE SGP MYS KHM KOR THA VNM BEL FIN TUN SVN MEX POL NLD PRT DNK SWE CHN AUT ESP GRC CRI FRA ITA DEU MAR PHL CAN ISR GBR TUR CHE IND ZAF CHL NOR JPN NZL USA AUS RUS PER ARG BRA IDN SAU 2014 1995 2008 8
meaning protectionism can be counterproductive Imports are often embodied in exports 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Intermediate imports embodied in exports as % of total intermediate imports, 2014 USA JPN GBR CHN DEU KOR MEX CZE HUN Total Electronics Transport equipment 9
(upstream) services providers play an important role in GVCs Services account for more than half of the value added embodied in exports 90 Services value added as a % of exports, 2014 80 70 60 50 40 30 20 10 0 COL IDN PER VNM CHL MEX KOR NOR RUS ARG MYS CHN CAN THA MAR ROU ZAF SVK CZE AUS PHL DEU JPN BRA TUN HUN SVN KHM POL TUR FIN ITA USA AUT PRT NLD CRI LTU ESP IND SWE EST ISR LVA FRA CHE GRC GBR BEL DNK SGP IRL LUX Domestic Foreign 10
TiVA: Who trades with whom? Chinese trade balances Smaller surplus with US, smaller deficits with Asian markets Gross and Value Added Trade Balances - 2014 11
..on interconnectedness Foreign value added content of domestic consumption by country by source region, 2014 50% 40% 30% 20% 10% 0% CHN USA BRA JPN AUS IND RUS TUR PER MEX ITA NLD IDN NOR ESP FRA NZL DNK DEU ISR CAN GRC GBR CHE CHL KOR SWE ZAF FIN PRT AUT POL BEL ISL SVN CZE LUX HUN EST IRL MAR SVK Europe NAFTA East and Southeast Asia South and Central America Other regions 12
TiVA on UK-EU27 relationships 9% of UK value added ( GDP ) is dependent on EU27 final demand (vice versa: 2%) and in some industries this share is even higher 40% 30% 20% 10% 0% 2000 2005 2010 2014 A further 2.5% of UK GDP is dependent on exports via EU27 countries to serve markets outside the EU 13
BEYOND VALUE ADDED 14
Beyond TiVA: trade, investment and inclusive globalisation TiVA and its underpinning ICIO has already been used to shed new light on the relationships between trade, production and consumption. But more is possible and necessary! Examples of policy questions regarding GVCs: What is the role of SMEs, MNEs (international investment) and other firms in countries, and in countries position in Global Value Chains? What are the social consequences (employment: how many jobs are involved in GVCs, how to achieve inclusive globalisation) What are the consequences of GVCs for the natural environment (e.g. emissions and pollution related to GVCs) And what about taxes? Extended supply and use tables are the core statistical tool to provide answers to these questions by integrating disparate statistics. They thereby also provide important scope for improved and coherent accounts, nationally AND via global (extended) Supply and Use tables internationally. 15
70% 60% 50% 40% 30% 20% 10% 0% Example (1): SMEs contribution to exports in gross and value-added terms Role of SMEs in international trade and GVCs greater than observed in gross export data alone 80% SMEs' share in gross exports SMEs' share in value added exports Value added exports of SMEs=Direct value added in SMEs exports + value added in inputs produced by SMEs and used by exporting firms 16
Example (2): Domestic MNEs are a key channel to foreign markets for non-mnes* Shares of firms in gross exports and in exported value added, 2013 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Gross exports Value added of exports Gross exports Value added of exports Gross exports Value added of exports Gross exports Denmark Finland Norway Sweden Value added of exports Foreign owned MNEs Domestic MNEs Non-MNEs, indirect exports via foreign-owned MNEs Non-MNEs, indirect exports via domestic MNEs Non-MNEs, indirect exports via other non-mnes Non-MNEs, direct exports Non-MNEs *Non-MNEs: domestic enterprises without foreign affiliates 17
Example (3): Up to 20% of employment at non-trading enterprises is sustained by foreign final demand 60% Share of employment that is embodied in exports, by firm type, 2013 40% 20% 0% Exporters Importers Two-way traders Non-Traders Exporters Importers Two-way traders Non-Traders Exporters Importers Two-way traders Non-Traders Exporters Importers Two-way traders Non-Traders Denmark Finland Norway Sweden Direct exports Indirect exports 18
Institutionalising and mainstreaming TiVA Improved statistical foundations Continued expansion of official collection of national Supply-Use Tables (OECD and non-oecd countries) Development the tools and mechanisms to ensure consistency between regional TiVA initiatives and OECD-WTO TiVA Balanced international merchandise and services trade statistics Regional-Global TiVA Steering Group, to coordinate activities and develop a joint Handbook for a globally recognised, jointly developed, single measure of TiVA Increasing quality and country coverage Bilateral collaboration (based on country requests) Via regional partnerships (e.g. with Eurostat (Figaro), UNESCWA, UNECA, APEC (APEC-TiVA initiative), CEFTA, UNECLAC, ) 19
Institutionalising and mainstreaming TiVA Development of statistical infrastructure for the beyond TiVA agenda CSSP Expert Group on Extended SUTs Support for microdata linking: OECD-Nordic NSOs collaboration: Nordic Countries in GVCs http://www.oecd.org/std/its/enterprises-in-global-value-chains.htm Eurostat-OECD STEC Compilers Guide http://ec.europa.eu/eurostat/web/products-manuals-and-guidelines/-/ks-gq-16-007 OECD Handbook on Linking Trade and Business Statistics (in progress) Improved statistics on the Trade-Investment nexus Joint STD-DAF Trade and Investment Country Notes http://www.oecd.org/investment/finland-trade-investment-statistical-country-note.pdf Started construction of an OECD database on multinational enterprises 20
Thank you Contact: Fabienne.Fortanier@oecd.org See also: http://oe.cd/tiva http://oe.cd/tiva-nowcast 21
EXTRA: NOWCASTING METHODOLOGY 22
Nowcast Trade in Value Added (TiVA) While the user demand for more timely TiVA estimates is clear, high quality benchmark TiVA estimates by necessity can only be available with a substantive time lag: Availability of national Supply Use Tables (SUTs, key input to the TiVA ICIO): typically only with a 2-3 year time lag Data integration into a global accounting framework: lengthy and complex process TiVA nowcast methodology key characteristics: Accounts explicitly for (differential) price movements (e.g. recent fluctuations in oil prices and other commodities) through the use of volume and current price estimates Converts statistics reported according to the 2008 SNA into 1993 SNA equivalents for goods for processing and merchanting transactions, in order to ensure consistent time series and to better reflect the policy drivers for TiVA Provides a degree of stability in the evolution of technology/production coefficients and consumption patterns over time by being iterative in nature (e.g. T+2 estimates are derived from T+1, etc) 23
Nowcast methodology: flow diagram 24 KP: Constant prices CP: Current prices RAS: matrix balancing technique Source: TiVA nowcast methodology www.oecd.org/std/its/tiva-nowcast-methodology.pdf
Nowcast full ICIO: required data Current and constant price constraints ( Constraints CP / KP in flow chart) National Accounts main expenditure (and trade) aggregates, including additional final demand information by product from national SUTs where available, with adjustments for 2008 SNA merchanting and goods for processing transactions Gross output (GO) and value added (VA) by TiVA industry Price indices ( Prices in flow chart) Price indices for Gross Output (by TiVA industry (column)) derived from the above CP and KP constraints Price indices for Imports (by TiVA industry (row)), derived from detailed merchandise import prices, benchmarked to the National Accounts equivalent, and total services trade (see Miao, Cheptitski and Fortanier, 2017, forthcoming) Bilateral trade statistics ( Bilateral Trade in flow chart) Bilateral International merchandise trade and bilateral international services trade, by product (ICIO industry) and end-use category. Building on newly developed OECD-WTO Balanced Trade Statistics 25
Nowcast full ICIO: SNA 1993 alignment Merchanting (export only) 1993 SNA recording: export of services (the merchanting fee only) 2008 SNA recording: net exports of goods under merchanting Adjustment: deduct net exports of goods under merchanting from the total exports of goods, and add back to total services exports Goods for processing 1993 SNA recording: gross flows of goods involved 2008 SNA recording: only the value of the manufacturing services fee Adjustments: deduct manufacturing services from total services trade flows add back the (reported or estimated) gross flows of the goods involved in processing to trade in goods 26
TiVA nowcast: first results Growth in international fragmentation stalled in the 2012-2014 period, albeit at record highs 25000 29% 20000 27% 25% 15000 23% 10000 21% 19% 5000 17% 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Exported Value-Added Gross exports Foreign content of exports (RHS) 15% 27
Thank you Contact: Fabienne.Fortanier@oecd.org See also: http://oe.cd/tiva http://oe.cd/tiva-nowcast 28
Where do we find the national data? Country A Sector 1 Sector 2 Sector 3 Country B Sector 1 Sector 2 Sector 3 Country C Sector 1 Sector 2 Sector 3 Taxes less subsidies on products Cif-fob adjustments Value added Labour compensation Operating surplus Taxes less subsidies on production Output Country A Country B Country C Final Demand Sector 1 Sector 2 Sector 3 Sector 1 Sector 2 Sector 3 Sector 1 Sector 2 Sector 3 Country A Country B Country C 1 4 3 6 7 2 5 Directly taken from the national SUT tables: 1. Intermediate domestic use; 2. Value added, output per industry; 3. Final demand (EXCL exports) More effort required: 4. Exports, by partner country (B and C) and INTERMEDIATE end use 5. Exports, by partner country (B and C), and FINAL end use. 6. Imports for intermediate use, by partner country and importing industry 7. Imports for final use, by partner country and exporting industry 29